Statsguru: The private sector investment cycle shows revival signs

The private sector investment cycle is showing signs of revival. New private sector project announcements in March were at their second-highest level on record, according to data from the Centre for Monitoring Indian Economy (CMIE). The previous high was in March 2023 when large aircraft orders may have skewed numbers (chart 1).

The current uptick is spread out across multiple sectors. There have been a slew of announcements in the past two months, including the ground-breaking for three semiconductor facilities. Manufacturing and electricity accounted for the majority of new project investments, beating services (chart 2).


 

This comes on the back of an increase in the HSBC India Manufacturing Purchasing Managers' Index, which came in at its highest level in 16 years in March. The index has crept higher ahead of the current election season compared to when the current government first came to power in 2014 (chart 3).


 

Companies typically invest in setting up new production facilities when existing capacity is close to being fully utilised. Capacity utilisation figures are only available with a lag, but the latest numbers were higher than the pre-pandemic levels (chart 4).


 

Private investment growth has decelerated across all South Asian countries, mirroring trends seen in other emerging markets and developing economies. India experienced a decline of 1.9 percentage points in private investment growth after the pandemic compared to the period preceding it, the lowest decline among its neighbouring nations, according to a report titled South Asia Development Update, April 2024, released by the World Bank.
 

Projects stalled due to clearances, funding, and other issues were a major hurdle to investments in the past. Latest data shows that the rate of stalling has declined to the lowest since 2013. For the private sector, it stands at 7.03 per cent while it is 2.65 per cent for government projects (chart 5).



The latest value of completed projects was Rs 8.4 trillion with government project completions outstripping the private sector (chart 6).